Consumer engagement in pensions is low in the UK. Evidence suggests people are almost hostile to pensions in terms of retirement planning.
A pensions dashboard could encourage engagement. But if we build it, will people use it?
Compared with Australia, people in this country are almost scared to look at their pension funds. While the after-dinner conversation here will be about house prices, down under it might be about the investment returns in your ‘super fund’ and the asset classes you are holding in it.
Policymakers in the UK have despaired. They fail to understand why people appear so uninterested in their financial futures that they avoid even opening their annual pension fund statement. That is if they are even saving into a pension at all.
In due time, automatic enrolment into pension saving will make a big difference for many, but by no means for all. It will remain the case that people will be reliant for a large part of their retirement income on the basic state pension and means-tested benefits. The search has been on for many years to encourage and promote private saving for retirement, with only modest levels of success. There is a belief that, if only we could improve engagement, higher levels of private saving would follow.
In the light of this thinking, the government has encouraged the financial industry to create a pensions dashboard. Here, consumers can identify and track the various pension entitlements built up over a working lifetime.
The belief is that, if people can really understand what pension funds they have, or do not have, they will become more interested in them and save more where this is needed.
The incentive for the industry to do this is that where shortfalls are apparent, those additional savings will flow to pension providers and pension schemes. Along with greater assets under management and better pension outcomes, a virtuous circle can be created.
Signs of progress?
A dashboard is underway and a prototype using real data has been created and tested.
This represents real progress. Moreover, it is evidence that consumer and industry incentives can be aligned, and the financial services profession is not totally self-serving. Helping people understand where they stand financially is simply the right thing to do. Indeed, the dashboard aims to help consumers do just that with regard to one of the biggest asset pools that most will ever build up.
But, as ever, there are flies in this particular ointment. Political initiatives are subject to the caprices of changing politicians and priorities in the Westminster village. What was a priority 18 months ago pre-Brexit may not be such a priority now.
The dashboard will need to be as comprehensive as it can be to be useful for consumers. This means providers and schemes will need to load huge amounts of data onto a shared platform, at some not inconsiderable cost. Common data standards will be needed, and will need to be created.
All this can be done if the political and industry will is there. The progress made to date is very impressive across a fragmented and fractured pensions industry.
All those involved should be congratulated on a great team effort. But the questions of engagement are still yet to be answered. Will the availability of tools and data finally engage UK consumers with their savings and financial futures? Or will they remain wilfully ignorant? Only time will tell. But if we do not build the dashboard, we will never know.
Malcolm Small is special adviser at Copia Capital Management.